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Intelligence Czar Can Waive SEC Rules 

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MAY 23, 2006 


By Dawn Kopecki 

Intelligence Czar Can Waive SEC Rules 

Now, the White House's top spymaster can cite national security to exempt businesses from reporting 

President George W. Bush has bestowed on his intelligence czar, John Negroponte, broad authority, in the name of national 
security, to excuse publicly traded companies from their usual accounting and securities-disclosure obligations. Notice of the 
development came in a brief entry in the Federal Register, dated May 5, 2006, that was opaque to the untrained eye. 

Unbeknownst to almost all of Washington and the financial world, Bush and every other President since Jimmy Carter have had the 
authority to exempt companies working on certain top-secret defense projects from portions of the 1934 Securities Exchange Act. 
Administration officials told BusinessWeek that they believe this is the first time a President has ever delegated the authority to 
someone outside the Oval Office. It couldn't be immediately determined whether any company has received a waiver under this 

The timing of Bush's move is intriguing. On the same day the President signed the memo, Porter Goss resigned as director of the 
Central Intelligence Agency amid criticism of ineffectiveness and poor morale at the agency. Only six days later, on May 11, USA 
Today reported that the National Security Agency had obtained millions of calling records of ordinary citizens provided by three 
major U.S. phone companies. Negroponte oversees both the CIA and NSA in his role as the administration's top intelligence official. 

FEW ANSWERS. White House spokeswoman Dana M. Perino said the timing of the May 5 Presidential memo had no significance. 
"There was nothing specific that prompted this memo," Perino said. 

In addition to refusing to explain why Bush decided to delegate this authority to Negroponte, the White House declined to say 
whether Bush or any other President has ever exercised the authority and allowed a company to avoid standard securities 
disclosure and accounting requirements. The White House wouldn't comment on whether Negroponte has granted such a waiver, 
and BusinessWeek so far hasn't identified any companies affected by the provision. Negroponte's office did not respond to requests 
for comment. 

Securities-law experts said they were unfamiliar with the May 5 memo and the underlying Presidential authority at issue. John C. 
Coffee, a securities-law professor at Columbia University, speculated that defense contractors might want to use such an exemption 
to mask secret assignments for the Pentagon or CIA. "What you might hide is investments: You've spent umpteen million dollars 
that comes out of your working capital to build a plant in Iraq," which the government wants to keep secret. "That's the kind of 
scenario that would be plausible," Coffee said. 

AUTHORITY GRANTED. William McLucas, the Securities & Exchange Commission's former enforcement chief, suggested that the 
ability to conceal financial information in the name of national security could lead some companies "to play fast and loose with their 
numbers." McLucas, a partner at the law firm Wilmer Cutler Pickering Hale & Dorr in Washington, added: "It could be that you have 
a bunch of books and records out there that no one knows about." 

The memo Bush signed on May 5, which was published seven days later in the Federal Register, had the unrevealing title 
"Assignment of Function Relating to Granting of Authority for Issuance of Certain Directives: Memorandum for the Director of 
National Intelligence." In the document, Bush addressed Negroponte, saying: "I hereby assign to you the function of the President 
under section 13(b)(3)(A) of the Securities Exchange Act of 1934, as amended." 

A trip to the statute books showed that the amended version of the 1934 act states that "with respect to matters concerning the 
national security of the United States," the President or the head of an Executive Branch agency may exempt companies from 
certain critical legal obligations. These obligations include keeping accurate "books, records, and accounts" and maintaining "a 
system of internal accounting controls sufficient" to ensure the propriety of financial transactions and the preparation of financial 
statements in compliance with "generally accepted accounting principles." 


Most recent comments 

http://www.businessweek.corn/print/bwdaily/dnflash/may2006/nf20060523_2210.htm?chan=db[4/l0/2012 11:53:49 PM] 

Intelligence Czar Can Waive SEC Rules 

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Leave your own comments 

Nickname: bloggsie 

Review: This is unbelievable rationalization. To what end are all these choices being mad? Slowly our freedoms are 
being chipped away and we stand there accepting it, rationalizing it as being okay. As wrong as this is, we are partly 
responsible for letting it happen and allowing other such rationalization/repression fall through. It's our tax dollars 
supporting such agencies, yet WE cannot be informed of what they do, how they do it, because it?s not our interest not 
to know for our "national security." Socialism preached the same message. Betterment of all man of all as the reason 
for their actions, no one ever questioned how they knew what each and every person wanted, and who suffered or 
didn't get what they wanted. 

Date reviewed: Dec 18, 2008 2:53 PM 

Nickname: Sparky 

Review: Boy, talk about a very slippery slope! So much for the accounting doctrine of "full disclosure!"And just how are 
these temporarily cooked books ever supposed to be subsequently reconciled - you know, as in Trial Balance? And 
what about the SEC's prime function of protecting investors against fraud and deceit? And last, but certainly not least, if 
an unknown number of tax dollars can be spent but simultaneously concealed, what about the issue of "taxation 
without representation?" 

Date reviewed: May 31, 2007 10:21 PM 

Nickname: Finnbar 

Review: It just keeps coming, doesn't it?What's next?Workfor the governmemt, get a free pass on killing? Oh, sorry. 
Thats already 

_ -H £= ' 

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Kopecki is a correspondent in BusinessWeek's Washington bureau 

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http://www.businessweek.corn/print/bwdaily/dnflash/may2006/nf20060523_2210.htm?chan=db[4/l0/2012 11:53:49 PM]